Wellgreen emerges — Prophecy Platinum passes a milestone with its first Yukon PEA

Throughout a 50-year history with numerous owners, the Wellgreen Project has never lacked for promise. Extensively drilled, it briefly produced high-grade nickel and copper in the Yukon 30 years ago. The property has been owned since 2011 by Prophecy Platinum (TSXV:NKL), which has added gold and platinum group metals (PGMs) to the traditional resource base. With the June 18 release of a positive preliminary economic assessment, that promise has begun to emerge. Wellgreen could, in the words of Chairman John Lee, “potentially reach of the size of the some of the world’s largest nickel-sulphide projects.”

Lee calls Wellgreen “humungous.” It measures 22.1 square kilometres precisely, with “up to almost 18 kilometers of known mineralization. We’ve only explored two kilometers. The existing resource, which is at 450 million tonnes, is entirely encapsulated in that two-kilometer strike.” The project is located in the southwest of the Yukon, 317 kilometres northwest of Whitehorse, 35 kilometres northwest of the Burwash Landing airstrip, 15 kilometres from the Alaska Highway and 402 kilometres from the deepsea port of Haines, Alaska.

The project has a CAPEX of $863 million, a pretax internal rate of return (IRR) of 38%, a pretax net present value (NPV) of $3 billion (at an 8% discount rate) and a 3.55-year payback. The CAPEX is based on diesel power, but Prophecy will consider reducing energy costs by such means as importing natural gas and building natural gas plants.

Lee comments, “The early indications of economic viability appear to be excellent. I think the market also reacted fairly well. We traded a half million shares, which is the highest trading-volume day for this year.”

The market has of late reacted negatively to several large-CAPEX projects. Does Lee believe $863 million will be amenable to investors? “I think we have to look at things relatively,” he responds. “This mine, once it is in production, will become one of the largest platinum-palladium projects in all of North America. And given the grade is fairly high compared to other deposits, we’re able to reduce the footprint to the milling rate of 32,000 tonnes per day at a fairly decent strip ratio of 2.5 to 1. I think our footprint is lower than the other megaprojects like International Tower Hill[‘s (TSX:ITH) Alaska Livengood gold project], that envisions 200,000 tonnes or 300,000 tonnes of mining weight, whereas we’re about 100,000 tonnes of mining weight.”

He continues, “We look at Wellgreen as more of a midsized project, and because of our location we’re able to eliminate a lot of the infrastructure costs. Not to mention that the $863 million CAPEX includes a 25% contingency. Not to say there won’t be project overruns, but we’re fairly comfortable with these numbers compared to the numbers turned out by our peers. Relative to our NPV, which is pegged at $3 billion, the CAPEX also seems very reasonable, versus other projects that have a $2-billion CAPEX and a $2-billion NPV.”

Wellgreen appears to contain significant amounts of rhodium, ruthenium, iridium and osmium. Yet these were not considered in the PEA. Lee explains, “This is a very early study, and this is one of the very few deposits in the world that contains these exotic elements. Some of these metals have traded at $9,000 an ounce, as in the case of rhodium in 2007. Iridium was $300, and now it’s over $1,000 an ounce. The inclusion of these metals could potentially further enhance the economics. About a month ago, we released some of the additional assay data on these exotic PGMs, and it looks like they could create as much as 30% of the existing known PGM-precious-metal resource base. But these metals could be difficult to extract, and we have to spend a lot more time and resources in really figuring out how these metals can add value.”

Prophecy has embarked this year on “the most extensive drill program” in Wellgreen’s half-century in order to convert inferred resources to measured and indicated and expand the resource. Thirty to 50 holes are expected at a cost of $15 million to $20 million.

As drilling continues, Prophecy moves to derisk Wellgreen. “The deposit has been mined before in the 1970s, and we’re still in the process of collecting a lot of the legacy data,” Lee reports. “After the PEA, there is metallurgy, prefeasibility, feasibility, environment impact assessment, water permitting, and so you’re looking at all permitting taking approximately three years, and that’s on the conservative side. So, therefore, we’re looking at construction beginning around 2016 and production at 2019.”

Lee is bullish on the Yukon; he characterizes its permitting process as “very transparent and well documented.” He adds, “We have invested a lot of time with the First Nations. There are two First Nations in the area of influence of where our project is, and we have very good relationships with both of them. When we go up there we stay at their hotels, and we employ their local youth to help us with some of the exploration work. So we feel very comfortable. But there are many steps that we have to take over time, in terms of a memo of understanding that’s in the works.”

Prophecy’s takeover of Ursa Major Minerals (TSX:UMJ) will close July 16. Lee comments, “Our specialty is mergers and acquisitions. In the last 2.5 years, we have done six. We’ve been successful in all these transactions, and we raised over $100 million in profits as a group in the last three years, even during times of financial crisis. We see Ursa Major as being lucrative and complementary to Wellgreen, even though its [Shakespeare] project is smaller in nature. But it falls into the same type of mineralization, which is platinum, palladium, precious metals, nickel and copper. Most important, its project is fully permitted and has had some contract mining in the last 12 months. We could be looking at turning around from a break-even situation for the mine to having substantial cash flow, depending on optimization and higher metal prices.”

Prophecy also owns the Lynn Lake nickel-copper project in Manitoba. This is “where we all got started in 2009,” Lee says. “We got it for a very good price, and it’s one of the very few advanced nickel-sulphide projects in Canada. It also has an extensive history of prior mining up until the 1970s. It has big infrastructure with an airport, power and rail. So our view is much that Ursa Major’s property requires revision of the feasibility study to better understand the economics. One of our projects is fully permitted, and one is well on its path to getting the mine permitted. So we’re going to move the projects and at the right time make a production decision. However, in the interim, for at least the next 12 months, the focus is squarely on Wellgreen.”

Lee believes that platinum is an underrated and undervalued component of Wellgreen. “Platinum in the last 30 years has consistently traded at a 30% premium to gold,” he points out, “and 90% of platinum is produced in South Africa, which has its own share of issues with power, mining costs and empowerment. The rest of the world produces only about a million ounces of platinum-palladium combined. Yet these metals are essential to other production of other catalysts, and they’re precious metals as well.”

And, “So we believe that platinum in due time is going to trade back to its historic norm, at a premium to gold, and that platinum demand will rise as economic recovery continues with other catalyst demands. We see Wellgreen as one of the handful of projects of a size that can appeal to majors and contribute significantly to global gold-PGM production.”

As for the interest of such majors in Wellgreen, Lee reports, “We’re open to all different proposals, and we’re in discussions.” Possible outcomes could include investment, a joint venture or an outright takeover.

Prophecy shares have risen about 25% since the beginning of June. “We’re almost back to where we started in 2012, which can’t be said of too many other junior companies,” Lee says. He concludes, “We attracted a lot of interest based on the fundamentals of the [PEA]. Our view is that the market is close to bottom for mining equities, and therefore the [PEA] news couldn’t be more timely for us.”

At press time, Prophecy Platinum had 55.5 million shares trading at $2.09 for a market cap of $115.9 million. On June 21, the company announced an up to $23-million private placement of special warrants.

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